The growing need for digital adoption in business activities is driving the demand for managed IT services across the emerging market. As the industry shows solid potential, investors could consider quality tech stocks Dropbox, Inc. (DBX), RADCOM Ltd. (RDCM), and Issuer Direct Corporation (ISDR) this month.
Accelerated by the COVID-19 pandemic, many organizations have recognized the need for digital adoption in their business activities (e.g., remote work support, software support, and data security). In order to embrace new technological solutions in a fast, modern, and innovative way, more companies are likely to use external support.
Revenue in the IT service industry is expected to show a CAGR of 6.7%, resulting in a market volume of $628.80 billion by 2028.
Moreover, the growing importance and usefulness of digital data drive the global hardware storage market. Also, rising consumer demand for devices to store their pictures and other data, smartphone penetration, and an increase in sales of consumer electronics are expected to drive growth.
Aided by the expanding digital economy, the global hardware storage market is expected to grow further until 2028, growing at a CAGR of 13%.
Also, AI is proven to be a significant revolutionary element of the upcoming digital era, and industry layers are working to make AI more accessible for enterprise use cases. The global artificial intelligence market is projected to expand at a CAGR of 37.3% until 2030.
Let’s discuss the stocks mentioned above in detail:
Dropbox, Inc. (DBX)
DBX provides a content collaboration platform worldwide. The company’s platform allows individuals, families, teams, and organizations to collaborate and sign up for free through its website or app, as well as an upgrade to a paid subscription plan for premium features.
On June 21, 2023, DBX announced the launch of Dropbox Dash and Dropbox AI, new AI-powered product experiences designed to improve modern work and help customers get more out of their content.
Dropbox Dash is a universal search tool that connects all tools, content, and apps in a single search bar; Dropbox AI applies generative AI to summarize and answer questions about content saved in Dropbox, starting with file previews.
The company is also building on its investment in AI with the launch of Dropbox Ventures, a new startup initiative to support the growing AI ecosystem, and renewing its commitment to applying AI responsibly with the introduction of its AI Principles.
DBX’s trailing-12-month EBIT margin of 14.85% is 231.5% higher than the 4.48% industry average. Its trailing-12-month EBITDA margin of 21.60% is 142.2% higher than the 8.92% industry average.
DBX’s revenue rose 8.7% year-over-year to $611.10 million in the first quarter that ended March 31, 2023. Its non-GAAP gross profit grew 10% from the prior-year quarter to $503.30 million. The company’s non-GAAP net income increased 3.3% year-over-year to $146.10 million, while non-GAAP net income per share rose 10.5% year-over-year to $0.42.
Street expects DBX’s EPS to increase 19.3% year-over-year to $0.45 in the fiscal second quarter that ended June 2023. Its revenue is likely to rise 7.1% from the previous-year quarter to $613.36 million in the same quarter. The company has an impressive earnings surprise history, surpassing the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past three months, the stock has gained 29.2% to close the last trading session at $25.87.
DBX’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Quality and a B for Growth and Value. It is ranked #5 in the 79-stock Technology - Services industry.
To access additional ratings for DBX’s Stability, Sentiment, and Momentum, click here.
RADCOM Ltd. (RDCM)
Headquartered in Tel Aviv, Israel, RDCM provides 5G-ready cloud-native network intelligence and service assurance solutions for telecom operators or communication service providers (CSPs). It offers RADCOM ACE, including RADCOM Service Assurance, RADCOM Network Visibility, and RADCOM Network Insights.
On July 13, 2023, RDCM announced the availability of its innovative 5G assurance solution on Google Cloud. This will provide telecom operators with an automated, cloud-native assurance offering that integrates seamlessly with Google Cloud for closed-loop, zero-touch operations on the cloud to enhance the customer experience and proactively improve 5G service quality.
On July 11, RDCM launched its cloud-native RADCOM Virtual Drive Test (VDT) solution as part of the RADCOM ACE platform for 5G to significantly reduce drive test costs, boost the nationwide mobility experience for subscribers and improve 5G service coverage 24/7 based on real user insights.
RDCM’s trailing-12-month gross profit margin of 72.13% is 48.9% higher than the industry average of 48.45%. Its trailing-12-month levered FCF margin of 18.74% is 172.1% higher than the industry average of 6.89%.
RDCM’s revenue for the fiscal second quarter ended June 30, 2023, increased 11.2% year-over-year to $12.37 million. The company’s non-GAAP gross profit increased 11.9% year-over-year to $9.01 million. Additionally, its net income per share came in at $0.05, compared to negative $0.09 in the previous-year quarter.
Analysts expect RDCM’s revenue to increase 7.9% year-over-year to $12.96 million for the fiscal third quarter ending September 2023. Also, it has surpassed revenue and EPS estimates in each of the trailing four quarters, which is remarkable.
RDCM’s shares have gained 6.6% over the past three months to close the last trading session at $9.90.
RDCM’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Sentiment and a B in Growth, Stability, and Quality. It is ranked #9 in the same industry.
Beyond what is stated above, we’ve also rated for Value and Momentum. Get all RDCM ratings here.
Issuer Direct Corporation (ISDR)
ISDR operates as a communications and compliance company and provides solutions for both public relations and investor relations professionals in the United States and internationally.
On May 16, ISDR released "AImee," its AI-Writing Assistant & Recommendation Engine, which will empower clients to generate more powerful stories, engaging content, and targeted messaging.
Its trailing-12-month net income margin of 4.75% is 125.3% higher than the 2.11% industry average. Its trailing-12-month gross profit margin of 76.60% is 58.1% higher than the 48.45% industry average.
ISDR's revenues rose 63% year-over-year to $8.62 million in the fiscal first quarter that ended March 31, 2023. The company’s gross profit increased 67.4% year-over-year to $6.79 million, while its non-GAAP net income per share increased 50% year-over-year to $0.33.
ISDR’s EPS is expected to increase 44.8% year-over-year to $0.42 in the fiscal second quarter ended June 2023. Its revenue is expected to rise 78.3% from the prior-year quarter to $10.36 million in the same quarter. Also, it has surpassed EPS estimates in three of the trailing quarters.
The stock has gained 20.9% over the past month to close the last trading session at $22.72.
ISDR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ISDR has an A grade for Sentiment and a B in Quality, Growth, and Value. It is ranked #6 in the same industry.
Click here for ISDR’s additional POWR Ratings (Momentum and Stability).
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DBX shares were trading at $25.84 per share on Thursday morning, down $0.03 (-0.12%). Year-to-date, DBX has gained 15.46%, versus a 18.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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